Sunday, June 6, 2010

WWDC: Hindrance of the Hoopla

Apple's annual Worldwide Developers Conference begins tomorrow. Apple CEO Steve Jobs will deliver the event's keynote address and speculation suggests he will introduce the fourth generation iPhone to the crowd and to the world. 
There's much talk ahead of the address on whether or not the new iPhone will wow the crowd or disappoint those with lofty expectations. The fact that a prototype iPhone was lost by an Apple employee (or stolen from his bag) at a bar and ended up sliced and diced for the world to see by an Internet publication has dampened some of the enthusiasm for the new phone's introduction. Few expect new features outside of those already detailed through the great iPhone caper. 
Whether or not the announcement of the fourth generation iPhone includes surprise announcements about unexpected hardware features should really be a secondary or tertiary concern for Apple shareholders and independent analysts. What matters is the continuing growth of the iPhone OS eco-system and the halo effect growth in iPhone sales has on all Apple product and service including Apple's profitable line of Macintosh computers. 
No matter the new features of the fourth generation iPhone, the product is designed to exploit the iTunes content distribution system and deliver post-purchase revenue to Apple, developers and distributors of digital content. Consequently, as important as the new iPhone handset is to many of us who follow the company and the stock, the release of iPhone OS 4 is at least equally important. 
The new iPhone OS provides for multi-tasking Apple style and is designed to meet the usage and security desires of IT managers and retail consumers. The value of hardware enhancements to the next generation iPhone should be evaluated on a scale weighted in favor of enhancements to the the post-purchase monetization of the handset.
The release of the Apple iPad that began in early April,  the release of the new iPhone handset and iPhone OS 4 will assist in pushing revenue growth this fiscal year to at least 50% and earnings growth by 70% or more. Understanding and appreciating the importance of iPhone OS 4 should not be overshadowed by the hoopla generated by the year's new iPhone handset. Apple's overall revenue and earnings growth transcends any one product or product line. 
As an independent analyst I'm interested in the growth of iTunes revenue and new revenue generated by Apple's iAd service. While the hoopla surrounding the announcement of the new iPhone handset may sway sentiment and the trading price of AAPL this week, it makes no long-term difference in the value of the shares.
Content drives hardware device sales. The growth in iPhone OS-related iTunes revenue and growth in other post-purchase monetization activities are bellwethers of the success of the iPhone OS eco-system. For investors and independent analysts, succumbing to the hoopla surrounding the new iPhone's hardware feature set might be a hindrance in understanding all of the important announcements to be made this week at WWDC, especially those announcements concerning iPhone OS 4 and the revenue and earnings growth opportunities that transcend any one product line or product refresh.

Robert Paul Leitao


  1. I believe that the iAd component will be a bellweather factor once it begins next month.

    ps I think the new phone is beautiful. The iBooks app will add revenue, too.

  2. I am waiting for the new i phone for an upgrade, and hope to buy one so I can see my grandkids on the phone.
    Wha's your take on today's debut?